Published 4:00 am, Saturday, May 13, 2006

Under the commission's ruling, $536,000 must be returned to federal coffers. Another $2.5 million must be reimbursed to the state's election fund but that money can be spent on voting-improvement projects in California.

"I'm pleased that this chapter of California's history is today a step closer to being behind us," said Secretary of State Bruce McPherson who was appointed to the job after Shelley resigned in February 2005 after a series of scandals buffeted his administration.

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Among other things, Shelley was accused of using federal voting act money to raise his political profile.

The state has 30 days to appeal the ruling, but the secretary of state's office said it won't dispute the main findings of the report.

Federal election officials were unavailable for comment.

The ruling by the U.S. Election Assistance Commission is less harsh than it could have been. Its initial audit of Shelley's use of federal Help America Vote Act funds found $3.8 million in questionable or inappropriate spending.

More than $300,000 of the money that must be returned was spent on postage and promotional items like buttons and balloons during a campaign to increase the number of permanent absentee voters.

Another $88,000 were salaries and benefits improperly paid with federal election money.

The federal audit followed one conducted by the state, which also found a pattern of slipshod management.

"Based on the previous audits, we should be thankful the repayment amount wasn't more," said Sen. Dave Cox, R-Fair Oaks (Sacramento County), who requested the initial state audit.